Entry Coordination and Auction Design with Private Costs of Information Acquisition

16 Pages Posted: 29 Mar 2010

See all articles by Jingfeng Lu

Jingfeng Lu

National University of Singapore (NUS) - Department of Economics

Abstract

Auction design with endogenous entry is complicated by entry coordination among bidders due to multiple entry equilibria issue. This article studies auction design when information acquisition costs are private information of bidders. We show that this problem can be resolved by sufficient dispersion in these costs. First, we find that a simple second-price auction with no entry fee and a reserve price equal to the seller's valuation is ex ante efficient, while a revenue-maximizing auction involves personalized entry fees, which are determined by the hazard rates of their information acquisition cost distribution. Second, we show that sufficient dispersion in the information acquisition costs (more dispersion than a particular uniform distribution by the Bickel-Lehman dispersive order) can coordinate bidders and implement uniquely the desirable entry. The dispersion in information acquisition costs is also necessary for this “unique implementation” result.

JEL Classification: D44, D82

Suggested Citation

Lu, Jingfeng, Entry Coordination and Auction Design with Private Costs of Information Acquisition. Economic Inquiry, Vol. 48, Issue 2, pp. 274-289, April 2010. Available at SSRN: https://ssrn.com/abstract=1578520 or http://dx.doi.org/10.1111/j.1465-7295.2009.00216.x

Jingfeng Lu (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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